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Child & Dependent Care - Credit Calculation

The child and dependent care credit is a percentage of your qualified expenses. Your expenses are subject to both the earned income limit and the dollar limit. The credit percentage is based on your adjusted gross income. Finally, the credit is limited to the amount of your tax liability.

Earned income limit. The amount of qualified expenses used to figure the credit cannot be more than your earned income. If you are married at the end of the year, your spouse’s earned income is also taken into account.

Dollar limit. The maximum amount on which the credit can be figured is $3,000 for one qualifying person or $6,000 for two or more qualifying persons. This amount is reduced by any dependent care benefits you received and excluded from income.

Nonrefundable credit. The child and dependent care credit is a nonrefundable credit. This means that it can only be used to reduce your tax liability to zero. Any excess cannot be refunded to you and cannot be carried over to the next tax year.